Having clarity around invoicing is beneficial for both vendors and customers. Customers can issue remittance slips to help suppliers match an invoice to a payment. On the other hand, suppliers can request remittance advice to optimize their accounts receivable processes.
Remittance advice plays an important part in the cash application process, helping accounting teams match incoming payments to the right invoices. However, sourcing and interpreting remittances can be challenging, as there is no standardized format that all companies use for remittances. AR staff ends up doing manual matching, which is time-consuming.
To prevent such problems, learn more about the remittance advice definition and why it matters for your accounts receivable processes.
What is Remittance Advice?
The term “remittance” refers to a payment directed to or from another party in the form of bills, invoices, or international transactions. It can also cover personal money transfers to friends and family. Customers use remittance advice to inform suppliers or vendors what invoice the payment is for or confirm that payment is being processed.
Remittance advice is a crucial document that serves as a communication tool between customers and businesses. The document helps businesses do month-end reconciliation of their accounts receivable records.
Details Included in Remittance Advice
The details included in remittance advice can vary based on the payment method. For example, a check payment may come with a detailed paper remittance, while an ACH payment might not include any additional information.
When receiving an email remittance, your accounts team can monitor the payment and contact the sender if needed. To avoid confusion, it’s crucial to ensure that all necessary details are included in the remittance advice. Typically, it includes:
Example of Remittance Advice
After receiving the remittance advice, your accounts receivable team will use the information to update their records and apply the payment to the correct invoices. This step is important to ensure that payments are processed accurately and promptly.
The remittance advice will include a detailed list of all the invoices covered by the payment, including important details such as invoice numbers, dates, and purchase order numbers. If the customer has taken any discounts, this information will also be noted on the remittance.
To provide you a clearer illustration of remittance advice, take a look at the example:
Types of Remittance Advice
Remittance advice comes in different forms, namely:
- Basic remittance advice is a printed paper that includes only the invoice number and payment date. It is also the easiest document to make, usually accompanied by a check for the vendor.
- Removable invoice advice is a document that the vendor sends together with the invoice, along with a detachable remittance slip for the customer to fill in. The payer will send this back with a check if the payment is manual, or input it online if the payment is digitized.
- Scannable remittance advice is an electronic file that stores and retrieves payment records, allowing vendors to access it digitally. The electronic remittance advice can be of three types:
- Email remittance advice: Customers send remittance information via email, either in the email body or as an attachment, as digital payments become more popular.
- EDI-based remittance advice: EDI, with its alphanumeric characters, is ideal for businesses managing large payment volumes, commonly used by large enterprises to automate accounts receivable.
- Web-based remittance advice: Payment information is sent from a customer to a supplier through a web-based portal, beneficial for high-volume payments, commonly used by retail giants like Amazon and Walmart.
Why is Remittance Advance Important for Businesses?
While remittance advice is not mandatory, it’s definitely helpful to keep them handy for a couple of reasons:
- Better invoice formatting: Remittance advice is relatively easy to make, and customers can simply reproduce the same format across all the invoices they’re paying.
- Better record-keeping: Remittance advice is useful for identifying which payments are associated with which accounts.
- Better cash flow management: Remittance advice is crucial for businesses to manage accounts receivable and accounts payable for effective cash flow maintenance.
- Better reconciliation: Remittance advice helps suppliers match payments to the correct invoices, saving time on monthly or yearly book closing.
- Better customer relationships: Remittance advice can guide businesses in providing customers accurate and timely information about their payments, preventing miscommunications.
How to Create a Remittance Slip?
To create a remittance slip, here are the steps to take:
- Gather payment information: This includes the customer’s and supplier’s information, invoice number, as well as the date and amount of the payment.
- Choose a template: Look for an online template or create one with a word processing software such as Microsoft Word or Excel. Make sure to add a logo or your company branding for a more professional look. Preferably, use the same format to avoid confusion.
- Double-check for accuracy: Make sure that all the information is correct or else there’ll be back-and-forth communications.
- Leave notes if necessary: Add a thank you note or any other relevant information.
- Finally, send the slip: For this, you can do it via mail or via a check. There are various methods to send remittance advice, including:
- Paper documents
- Excel sheets
- EDI
- Check
- Accounts payable portal
As more businesses are adopting accounts payable software, it is likely for customers to send remittance advice through the AP system, which can be easily integrated with the existing accounting tool. Accounts receivable professionals may receive automatic emails that notify the status of the invoice, whether it’s waiting for approval or already paid.
Remittance Advice Best Practices
To use remittance advice effectively, businesses should adhere to the following best practices:
- Use digital remittance advice: Compared with paper-based remittance advice, electronic remittance advice is easier to make and more secure.
- Check for discrepancies: Investigate and resolve any discrepancies in accounts receivable records as soon as possible.
- Give clear instructions: Make sure customers know what information to include in their remittance advice.
- Implement automation: Improve efficiency and reduce errors by automating processes where possible.
- Maintain accurate records: Ensure that accounts receivable records are accurate by maintaining up-to-date records of the remittance advice.
- Provide employee training: Train staff members responsible for handling receivables and payables to effectively use remittance advice, as it can help with their tasks and improve team productivity.
Challenges with Remittance Advice
Here are the most common challenges that customers and vendors experience when dealing with remittance advice:
1. Discrepancies in Formats and Sources
Retrieving remittance advice from multiple customers can be challenging due to the lack of standardized formats and the possibility of not receiving remittance advice at all. AR staff may need to contact customers for clarification, which can be time-consuming. Additionally, retrieving remittance advice from different sources and formats, especially from AP automation platforms, can be a daunting task as the customer base grows.
2. Illegible Remittance Advice
Remittance slips can be illegible due to blurred images, missing characters, or handwriting. The varying formats of remittance slips can also make it difficult for accounts receivable staff to apply payments correctly.
3. Complex Matching Process
Matching remittances with open invoices can be a complicated process due to factors such as one payment covering multiple invoices, short-paid invoices, and missing remittance advice. These situations can result in significant amounts of work for accounts receivable staff, including fact-finding, troubleshooting, and communication with customers.
Automate Remittance Capture with Peakflo
If you feel like your finance team is spending their precious time on matching remittances with payments, it’s time to stop.
Automated remittance capture offers several benefits to businesses. By automatically extracting key payment information from remittance advice, it eliminates the need for manual data entry, reducing the risk of errors and speeding up the cash application process. This automation also improves accuracy, ensuring that payments are applied to the correct invoices promptly.
Peakflo’s Cash Application Solution enables you to automatically extract accurate and noise-free remittance information. Peakflo’s OCR feature simplifies cash applications by capturing and recording remittance details directly from email. The system automatically creates unapplied payments from scanned receipts and applies them to overdue invoices based on reference numbers. This automation streamlines the process and allows your accounts receivable team to easily validate and edit details, making cash application a breeze.
By integrating your accounting software with Peakflo, we do the data matching for you. This way, you can save 100 man-hours a month on tedious reconciliation and focus on what really matters.
FAQ
What is check remittance advice?
Check remittance advice is a document that accompanies a check payment, providing details such as invoice numbers, amounts, and payment dates. It helps the recipient apply the payment correctly.
What is email remittance advice?
Email remittance advice is similar to check remittance advice but is sent electronically via email. It contains payment details and helps streamline the payment reconciliation process.
What is remittance information?
Remittance information includes details about a payment, such as the amount paid, invoice numbers, and payment date. It helps the recipient understand the purpose and details of the payment.
Is Remittance Advice proof of payment?
Remittance advice serves as a record of payment details but is not considered proof of payment. Proof of payment is typically provided by the payment method used, such as a bank statement or receipt.
Why Do Businesses Send Remittance Advice?
Businesses send remittance advice to provide payment details to their suppliers, helping them accurately apply the payment to the correct invoices and track their accounts receivable.
Is Sending Remittance Advice Required?
Sending remittance advice is not always required but is considered a best practice to ensure transparency and accuracy in the payment process, especially for businesses that make frequent payments.
Is remittance advice an invoice?
Remittance advice is not an invoice. It is a document sent by a payer to a payee to provide details of payment, whereas an invoice is a request for payment issued by the payee to the payer.
Who issues remittance advice?
Remittance advice is typically issued by the payer, such as a business or individual making a payment to a supplier or vendor, to provide details of the payment.
